The Securities and Exchange Commission’s (SEC) Enforcement
Division alleges that Gray Financial Group, its founder and president Laurence
O. Gray, and its co-CEO Robert C. Hubbard IV breached their fiduciary duty by
steering several Atlanta public pension fund clients to invest in an alternative
investment fund offered by the firm, despite knowing the investments did not
comply with state law.

Georgia law allows most public pension funds in the
state to purchase alternative investment funds, but the investments are subject
to certain restrictions that Gray Financial Group’s fund allegedly failed to
meet.

In an order instituting an administrative proceeding, the
SEC’s Enforcement Division alleges that Gray Financial Group has collected more
than $1.7 million in fees from the pension fund clients as a result of the
improper investments.

According to the order, Gray Financial Group recommended
investments in its fund called GrayCo Alternative Partners II LP to the city of
Atlanta’s Firefighters’ Pension Fund, General Employees’ Pension Fund, and
Police Officers’ Pension Fund, as well as the MARTA/ATU Local 732 Employees
Retirement Plan.

The SEC alleges the investments violated Georgia law in the
following ways:

A
Georgia public pension fund’s investment is limited to no more than 20% of
the capital in an alternative fund. Two of the pension funds’ investments
surpassed that limit.

The
law requires at least four other investors in an alternative fund at the
time of a Georgia public pension fund’s investment. There were fewer than
four other investors in GrayCo Alternative Partners II LP at the time of
these investments.

There
must be at least $100 million in assets in an alternative fund at the time
a Georgia public pension fund invests. GrayCo Alternative Partners II LP
has never reached that amount.

The SEC’s Enforcement Division further alleges that Gray
Financial Group and Gray made material misrepresentations to at least one
client when asked specifically about the investments’ compliance with the law.
They also misrepresented the number and identity of prior investors in the
fund.

The matter will be scheduled for a public hearing before an
administrative law judge for proceedings to adjudicate the Enforcement
Division’s allegations and determine what, if any, remedial actions are
appropriate.